Exhibit 4.2
________________________________________________________________________________
________________________________________________________________________________
PREFERRED STOCK PURCHASE AGREEMENT
among
ImaginOn, Inc.
and
Gage LLC
May 4, 1999
________________________________________________________________________________
________________________________________________________________________________
THE ▇▇▇▇▇▇▇▇▇ LAW GROUP, P.C.
▇▇ ▇▇▇▇▇▇▇▇, ▇▇/th/ Floor
New York, N.Y. 10006
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
PREFERRED STOCK PURCHASE AGREEMENT
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THIS PREFERRED STOCK PURCHASE AGREEMENT, dated as of May 4, 1999 (the
"Agreement"), among Gage LLC (hereinafter referred to as the "Investor"), and
ImaginOn, Inc., a corporation organized and existing under the laws of the State
of Delaware (NASDAQ Small Cap Market symbol "IMON", the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
and the Investor shall purchase (a) 4,000 shares of Preferred Stock (as defined
below), and (b) a Warrant to purchase 122,553 Warrant Shares; and
WHEREAS, such investment will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
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Certain Definitions
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Section 1.1 "Additional Shares" shall have that meaning set forth in Section
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2.4 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
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Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Business Day" means any day except Saturday, Sunday and any
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day which shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government actions to close.
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares of
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any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.5 "Capital Shares Equivalents" shall mean any securities,
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rights, or obligations that are convertible into or exchangeable for, or giving
any right to subscribe for, any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.6 "Certificate of Designation" shall mean the Company's
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Certificate of Designation setting forth all of the rights, privileges and
preferences of the Preferred Stock, as annexed hereto as Exhibit A and made a
part hereof.
Section 1.7 "Closing" shall mean the closing of the purchase and sale of
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the Preferred Stock and a Warrant pursuant to Article II below.
Section 1.8 "Closing Date" shall mean the date each of the conditions
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precedent to the Closing as set forth in Section 2.6 below, have been satisfied
or waived in writing.
Section 1.9 "Common Stock" shall mean the Company's common stock, $0.01
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par value per share.
Section 1.10 "Damages" shall mean any loss, claim, damage, liability,
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costs and expenses which shall include, but not be limited to, reasonable
attorney's fees, disbursements, costs and expenses of expert witnesses and
investigation.
Section 1.11 "Effective Date" shall mean the date on which the SEC first
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declares effective a Registration Statement registering the resale of the
following: (i) 150% of the number of Underlying Shares assuming a Conversion
Date on the Closing Date, and (ii) 100% of the Warrant Shares issued to the
Investor as per terms of this Agreement.
Section 1.12 "Escrow Agent" shall mean the law firm of The ▇▇▇▇▇▇▇▇▇ Law
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Group, P.C., pursuant to the terms of the Escrow Agreement attached as Exhibit
B.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
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1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Legend" shall have the meaning set forth in Article VIII
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below.
Section 1.15 "Material Adverse Effect" shall mean any effect on the
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business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise in any material respect interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Certificate of Designation, or Warrant in any material respect.
Section 1.16 "NASD" shall mean the National Association of Securities
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Dealers, Inc.
Section 1.17 "Outstanding" when used with reference to shares of Common
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Stock, preferred stock of the Company, or Capital Shares (collectively the
"Shares"), shall mean, at any date as of which the number of such Shares is to
be determined, all issued and outstanding Shares, and shall include all such
Shares issuable in respect of outstanding scrip or any
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certificates representing fractional interests in such Shares; provided,
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however, that Outstanding shall not mean any such Shares then directly or
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indirectly owned or held by or for the account of the Company.
Section 1.18 "Person" shall mean an individual, a corporation, a
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partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.19 "Preferred Stock" shall mean the Company's Series C Preferred
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Stock with the rights, privileges and preferences, as set forth in the
Certificate of Designation.
Section 1.20 "Prime Rate" shall mean the rate of interest per annum
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publicly announced from time to time by the principal New York City office of
the Chase Manhattan bank, or its successor, as its prime rate (which rate shall
change when and as such prime rate changes).
Section 1.21 "Principal Market" shall mean the Nasdaq National Market, the
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Nasdaq Small Cap Market, the American Stock Exchange, or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.22 "Purchase Price" shall mean $4,000,000.
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Section 1.23 "Registrable Securities" shall mean the Underlying Shares,
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Additional Shares, and Warrant Shares, (i) in respect of which the Registration
Statement (covering these securities) has not been declared effective by the
SEC, (ii) which have not been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) which have not been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, or (iv) the sales of which, in the opinion of counsel to the
Company, are subject to any time, volume or manner of sale limitations pursuant
to Rule 144(k) (or any similar provision then in effect) under the Securities
Act.
Section 1.24 "Registration Rights Agreement" shall mean the agreement
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regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor on the
Subscription Date annexed hereto as Exhibit C.
Section 1.25 "Registration Statement" shall mean a registration statement
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on Form S-3 (or any other available form) for the registration of the resale by
the Investor of the Registrable Securities under the Securities Act.
Section 1.26 "Regulation D" shall have the meaning set forth in the
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recitals of this Agreement.
Section 1.27 "SEC" shall mean the Securities and Exchange Commission.
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Section 1.28 "Section 4(2)" shall have the meaning set forth in the
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recitals of this Agreement.
Section 1.29 "Securities" shall mean the Underlying Shares, the Additional
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Shares, and the Warrant Shares.
Section 1.30 "Securities Act" shall have the meaning set forth in the
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recitals of this Agreement.
Section 1.31 "SEC Documents" shall mean the Company's latest Form 10-KSB
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(and all amendments thereto) as of the time in question, all Form 10-QSBs and
Form 8-Ks filed thereafter, the Proxy Statement for its latest fiscal year as of
the time in question, and any currently effective registration statement, until
such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section 1.32 "Subscription Date" shall mean the date on which this
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Agreement and all Exhibits and attachments hereto are executed and delivered by
the parties hereto.
Section 1.33 "Trading Day" shall mean any day during which the Principal
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Market shall be open for business.
Section 1.34 "Underlying Shares" shall mean all shares of Common Stock or
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other securities issued or issuable pursuant to conversion of the Preferred
Stock.
Section 1.35 "Warrant" shall mean the Common Stock Purchase Warrant
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annexed hereto as Exhibit D.
Section 1.36 "Warrant Shares" shall mean all shares of Common Stock or
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other securities issued or issuable pursuant to the exercise of the Warrant.
ARTICLE II
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Purchase and Sale of the Preferred Stock and Warrant
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Section 2.1 Closing. On the Closing Date, the Company will sell and the
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Investor will buy, in reliance upon the representations, covenants, and
warranties contained in this Agreement and all Exhibits annexed hereto, and
subject to the terms and satisfaction of each of the conditions set forth in
Section 2.6 below, 4,000 shares of Preferred Stock (each share of Preferred
Stock has a Stated Value (as defined in the Certificate of Designation) of
$1,000), and a Warrant to purchase 122,553 shares of Common Stock, for the
Purchase Price.
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Section 2.2 Form of Payment. The Investor shall pay the Purchase Price
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by delivering good funds in United States Dollars by wire transfer to the Escrow
Agent, against delivery of the original shares of Preferred Stock and Warrant.
The parties have entered into an Escrow Agreement annexed hereto as Exhibit B.
Section 2.3 Warrant. The Company will issue to the Investor on the
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Closing Date a Warrant, exercisable beginning on the Effective Date and then
exercisable any time over the four year period there following, to purchase
122,553 Warrant Shares. The Warrant shall be delivered by the Company to the
Escrow Agent, and delivered to the Investor pursuant to the terms of this
Agreement and the Escrow Agreement. All of the aforementioned Warrant Shares
shall be registered for resale pursuant to the Registration Rights Agreement.
Section 2.4 Additional Shares. If a "blackout period" occurs, which is
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defined as any period in which the effectiveness of the Registration Statement
is suspended for a reason other than a suspension of the Registration Statement
arising because the Company possesses material non-public information, and the
Bid Price on the Trading Day immediately preceding such "blackout period" (the
"Old Bid Price") is greater than the Bid Price on the first Trading Day
following such "blackout period" (the "New Bid Price"), the Company shall issue
to the Investor the number of additional shares of Common Stock equal to the
difference between (y) the product of (i) the number of Securities held by the
Investor during such "blackout period" that are or were not otherwise freely
tradable and (ii) the Old Bid Price, divided by the New Bid Price and (z) the
number of Securities held by the Investor during such "blackout period" that
were not otherwise freely tradable during such Blackout Period.
Section 2.5 Liquidated Damages. In addition to any other provisions for
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liquidated damages in this Agreement or any Exhibit annexed hereto, if that the
Company does not deliver unlegended, freely tradable Common Stock in connection
with the sale of such Common Stock by the Investor as set forth in Article VIII
below within five Business Days of surrender by the Investor of the Common Stock
certificate in accordance with the terms and conditions set forth in Article
VIII below (such date of receipt is referred to as the "Receipt Date"), the
Company shall pay to the Investor, in immediately available funds, upon demand,
as liquidated damages for such failure and not as a penalty, for every day
thereafter for the first ten days, one percent of the product of (i) the number
of shares of Common Stock undelivered and (ii) the Bid Price on the Receipt
Date, and two percent of the product of (i) the number of shares of Common Stock
undelivered and (ii) the Bid Price on the Receipt Date, for every day thereafter
that the unlegended shares of Common Stock are not delivered, which liquidated
damages shall accrue from the sixth Business Day after the Receipt Date. The
parties hereto acknowledge and agree that the sums payable pursuant to the
Registration Rights Agreement and as set forth above, and the obligation to
issue Registrable Securities under Section 2.4 above, shall constitute
liquidated damages and not penalties. The parties further acknowledge that the
amount of loss or damages likely to be incurred in the event of a failure to
deliver unlegended, freely tradable shares of Common Stock cannot be precisely
estimated, and the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length. Notwithstanding the above, if event that the
Company does not deliver unlegended Common Stock in connection with the sale
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of such Common Stock by the Investor as set forth in Article VIII below within
five Business Days of the Receipt Date, the Company shall also pay to the
Investor, in immediately available funds, interest (at the then current Prime
Rate), based upon the product of (i) the number of undelivered unlegended freely
tradable shares, and (ii) the Bid Price of the Common Stock on the Receipt Date,
undelivered for every day thereafter that the unlegended shares of Common Stock
are not delivered. Any and all payments required pursuant to this paragraph
shall be payable only in cash, and any payment hereunder shall not relieve the
Company of its delivery obligations under this Section or elsewhere in this
Agreement or any Exhibit annexed hereto.
Section 2.6 Conditions to Closing.
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(a) Conditions to Investor's Obligation to Purchase the Preferred
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Stock and Warrant. The Company agrees to sell and the Investor agrees to
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purchase 4,000 shares of Preferred Stock and a Warrant to purchase 122,553
Warrant Shares upon the satisfaction, or written waiver, of each of the
following conditions:
(i) Acceptance by the Investor of a satisfactory Purchase
Agreement and due execution by all parties of this Agreement and the
Exhibits annexed hereto;
(ii) Delivery to the Escrow Agent by the Company of 4,000
original shares of Preferred Stock, and the original Warrant being
purchased, as more fully set forth in the Escrow Agreement attached hereto
as Exhibit B;
(iii) All representations, covenants, and warranties of the
Company contained herein shall remain true and correct in all material
respects as of the Closing Date;
(iv) The Investor shall have received an opinion of counsel
substantially in the form of Exhibit E annexed hereto;
(v) The Company shall have obtained all permits and
qualifications required for the offer and sale of the Preferred Stock, and
Warrant, and the proposed issuance of the Securities or shall have the
availability of exemptions therefrom. At the Closing Date, the sale and
issuance of the Preferred Stock and Warrants, and the proposed issuance of
the Securities, shall be legally permitted by all laws and regulations to
which the Company and the Investor are subject;
(vi) The Investor shall have received the instruction letter
executed by the Company and the Company's transfer agent as set forth in
Exhibit F annexed to this Agreement;
(vii) The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement, the Certificate of Designation, the
Escrow Agreement, the Registration Rights Agreement
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and the Warrant, to be performed, satisfied or complied with by the Company
at or prior to the Closing Date;
(viii) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
that prohibits or directly and adversely affects any of the transactions
contemplated by this Agreement or the Exhibits annexed hereto, and no
proceeding shall have been commenced that may have the effect of
prohibiting or adversely affecting any of the transactions contemplated by
this Agreement or the Exhibits annexed hereto;
(ix) The trading of the Common Stock has not been suspended by
the SEC or the Principal Market, and the Common Stock has not been delisted
from the NASDAQ Small Cap Market. The issuance of shares of Common Stock
with respect to the conversion of the Preferred Stock, and/or exercise of
the Warrant shall not violate the shareholder approval requirements of the
NASDAQ Small Cap Market or the Principal Market where the Common Stock is
then listed. The Company shall not have been contacted by the NASD
concerning the delisting of the Common Stock on the NASDAQ Small Cap Market
and the Company currently meets all applicable listing requirements of the
Principal Market; and
(x) Payment of fees as set forth in Section 12.7 below.
(b) Conditions to the Company's Obligation to Sell. The Investor
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understands that the Company's obligation to sell the Preferred Stock and
Warrant is subject to the satisfaction (or written waiver) on the Closing Date,
of each of the following conditions:
(i) Delivery by Investor of a copy of this Agreement and each
Exhibit annexed hereto to which it is a party (substantially in the form
annexed hereto), in each case executed by the Investor;
(ii) Delivery to the Escrow Agent by the Investor of good
cleared funds as payment for the Purchase Price for the purchase of the
Preferred Stock and Warrant;
(iii) All representations and warranties of the Investor
contained herein shall remain true and correct in all material respects as
of the Closing Date; and
(iv) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock and Warrant, or shall have the availability of exemptions
therefrom. At the Closing Date, the sale and issuance of the Preferred
Stock, Warrants, and Securities shall be legally permitted by all laws and
regulations to which the Investor and the Company are subject.
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ARTICLE III
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Representations and Warranties of the Investor
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The Investor represents and warrants to the Company that:
Section 3.1 Intent. Without limiting its ability to resell the
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Securities pursuant to an effective registration statement or an exemption from
registration, the Investor is entering into this Agreement for its own account
and has no present arrangement (whether or not legally binding) at any time to
sell the Securities to or through any person or entity; provided, however, that
by making the representations herein, the Investor does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with federal and state
securities laws applicable to such disposition. Without limiting its ability to
resell the Preferred Stock, Warrant, and Securities, the Investor represents
that the Preferred Stock and Warrant are purchased for the Investor's own
account, for investment purposes only and not for distribution or resale to
others. The Investor agrees that it will not sell the Preferred Stock, Warrant,
Underlying Shares, or Warrant Shares unless they are registered under the
Securities Act or unless an exemption from such registration is available.
Section 3.2 Accredited Investor/Investment Experience. The Investor is
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an accredited investor (as defined in Rule 501 of Regulation D), and has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Preferred Stock and Warrant. As of
the Closing Date, the Investor (i) has adequate means of providing for its
current need and possible personal contingencies, (ii) has no need for liquidity
in this investment, (iii) is able to bear the substantial economic risk of an
investment in the Preferred Stock and Warrant for an indefinite period, and (iv)
can afford the complete loss of his investment. The Investor recognizes the
highly speculative nature of this investment. The Investor acknowledges that it
has carefully read the SEC Documents, and the terms and conditions of the
Certificate of Designation and Warrant and fully understands the contents
thereof.
Section 3.3 Authority. This Agreement has been duly authorized and
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validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The decision to invest and
the execution and delivery of this Agreement by the Investor, the performance by
the Investor of its obligations hereunder and the consummation by the Investor
of the transactions contemplated hereby have been duly authorized and requires
no other proceedings on the part of the Investor. This Agreement has been duly
executed and delivered by the Investor and, assuming the due execution and
delivery hereof and acceptance thereof by the Company, will constitute the
legal, valid and binding obligations of the Investor, enforceable against the
Investor in accordance with its terms.
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Section 3.4 Not an Affiliate. The Investor is neither an officer,
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director nor "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5 Absence of Conflicts. The execution and delivery of this
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Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated hereby and thereby, and
compliance with the requirements thereof, will not (a) violate the
organizational documents of the Investor; (b) violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge; (c) violate any provision of any indenture, instrument
or agreement to which the Investor is a party or are subject, or by which any
Investor or any of its assets is bound; (d) conflict with or constitute a
material default thereunder; (e) result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by the Investor to any third
party; or (f) require the approval of any third-party (which has not been
obtained) pursuant to any material contract, agreement, instrument, relationship
or legal obligation to which the Investor is subject or to which any of their
assets, operations or management may be subject.
Section 3.6 Disclosure; Access to Information. The Investor has received
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all documents, records, books and other information pertaining to Investors'
investment in the Company that have been requested by the Investor. The Investor
has had the opportunity to ask questions of, and receive answers from, the
Company.
Section 3.7 Manner of Sale. At no time was the Investor presented with
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or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising in
connection with the offer and sale of the Preferred Stock and Warrant.
Section 3.8 Exemption from Registration. The Investor acknowledges and
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understands that the shares of Preferred Stock and Warrant have not been
registered under the Securities Act by reason of an exemption under the
provisions of the Securities Act.
Section 3.9 No Legal, Tax or Investment Advice. The Investor understands
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that nothing in this Agreement or any other materials presented to the Investor
in connection with the purchase and sale of the Preferred Stock and Warrant
constitutes legal, tax or investment advice. The Investor has relied on, and has
consulted with, such legal, tax and investment advisors as it, in its sole
discretion, have deemed necessary or appropriate in connection with its purchase
of the Preferred Stock and Warrant.
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ARTICLE IV
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Representations and Warranties of the Company
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The Company represents and warrants that:
Section 4.1 Organization of the Company. The Company is a corporation
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duly incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted except as described in the SEC
Documents. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those (individually or in the aggregate) in which the failure so to
qualify would not reasonably be expected to have a Material Adverse Effect. The
Company is not in violation of any material terms of its Certificate of
Incorporation (as defined below) or Bylaws (as defined below).
Section 4.2 Authority. (i) The Company has the requisite corporate power
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and authority to enter into and perform its obligations under this Agreement,
and all Exhibits annexed hereto, and to issue the Preferred Stock, Warrant, and
the Securities, (ii) the execution, issuance and delivery of this Agreement, and
all Exhibits annexed hereto by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company, its shareholders, or its Board of Directors is necessary, and (iii)
this Agreement, and all Exhibits annexed hereto, have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Upon their issuance and delivery pursuant to this Agreement, the Preferred
Stock, Warrant, and the Securities will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances other than those
created hereunder or by the actions of the Investor; provided, however, that the
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Preferred Stock, Warrant, and the Securities are subject to restrictions on
transfer under state and/or federal securities laws. The issuance and sale of
the securities hereunder will not give rise to any preemptive right or right of
first refusal or right of participation on behalf of any person other than the
Investor pursuant to the terms of this Agreement.
Section 4.3 Capitalization. As of March 26, 1999, the authorized capital
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stock of the Company consists of 50,000,000 shares of Common Stock, $0.01 par
value, of which 37,602,752 shares are outstanding, and 5,000,000 shares of
preferred stock, of which 3,000 shares are outstanding. All of the outstanding
shares of the Company's capital stock have been duly and validly authorized and
issued and are fully paid and nonassessable. No shares of Common Stock or
preferred stock of the Company are entitled to preemptive or similar rights.
Except as disclosed in the SEC Documents, there are no outstanding options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale
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of the Preferred Stock and Warrant, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any subsidiary is or may
become bound to issue additional shares of Common Stock or securities or rights
convertible or exchangeable into shares of Common Stock. Except as disclosed in
the SEC Documents, to the knowledge of the Company, no Person or group of
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Persons beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act) or has the right to acquire by agreement with or by
obligation binding upon the Company beneficial ownership of in excess of five
percent of the Common Stock.
Section 4.4 Common Stock. The Company has registered its Common Stock
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pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and such Common Stock is currently
listed or quoted, and trades, on the NASDAQ Small Cap Market, and the Company is
in full compliance with the rules and regulations of the NASDAQ Small Cap
Market.
Section 4.5 SEC Documents. The Company has delivered or made available
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to the Investor true and complete copies of the SEC Documents filed by the
Company with the SEC during the twelve (12) months immediately preceding the
date hereof. The Company has not provided to the Investor any information that,
according to applicable law, rule or regulation, should have been disclosed
publicly prior to the date hereof by the Company, but which has not been so
disclosed. The SEC Documents comply in all material respects with the
requirements of the Securities Act and/or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder and none of the
SEC Documents contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.6 Valid Issuances. Neither the issuance of the Preferred
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Stock, Warrant, or Securities, nor the Company's performance of its obligations
under this Agreement, and all Exhibits annexed hereto, will (i) result in the
creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Warrant, Preferred Stock, or Securities, issued or
issuable hereunder, or any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
to or acquire any Capital Shares or other securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to this
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Transaction. Neither the Company nor any of its affiliates, nor any distributor
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or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising in connection with the offer and sale of the Preferred
Stock, Warrant, or Securities, or (ii) has made any offers or sales of any
security or
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solicited any offers to buy any security under any circumstances that would
require registration of the Preferred Stock, Warrant, or Securities under the
Securities Act, except as contemplated by this Agreement.
Section 4.8 Corporate Documents. The Company has furnished or made
-------------------
available to the Investor true and correct copies of the Company's Certificate
of incorporation, as amended and in effect on the date hereof (the "Certificate
of Incorporation"), and the Company's bylaws, as amended and in effect on the
date hereof (the "ByLaws").
Section 4.9 No Conflicts. The execution, delivery and performance of
------------
this Agreement (including all Exhibits annexed hereto) by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Preferred Stock, Warrant, and
Securities, do not and will not (i) result in a violation of the Company's
Certificate of Incorporation or ByLaws or (ii) conflict with, or constitute a
material default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, patent, patent license,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Company is a party, or (iii) result in a
violation of any federal, state or local law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected, nor is the Company otherwise in violation of, in conflict
with, or in default under, any of the foregoing except as would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect. The business of the Company is not being conducted in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not reasonably be
expected to have a Material Adverse Effect. Except for the filing of a Form D
within 15 days after the Closing Date (which the Company agrees it will file),
and such other form(s) required by "blue sky" laws, the Company is not required
under federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Preferred Stock, or
Warrant, in accordance with the terms hereof; provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investor
herein.
Section 4.10 No Material Adverse Change. Since January 1, 1999, no
--------------------------
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents, or as publicly announced.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities
--------------------------
or obligations, known or unknown, absolute or otherwise, which are not disclosed
in the SEC Documents or otherwise publicly announced, or as incurred in the
ordinary course of the Company's businesses since January 1, 1999, or which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
13
Section 4.12 No Undisclosed Events or Circumstances. Since January 1,
--------------------------------------
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company, but which
has not been so publicly announced or disclosed in the SEC Documents.
Section 4.13 Litigation and Other Proceedings. Except as may be set forth
--------------------------------
in the SEC Documents, there are no lawsuits or proceedings pending or to the
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
be reasonably expected to result in a Material Adverse Effect.
Section 4.14 Accuracy of Reports and Information. The Company is in
-----------------------------------
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the Exchange Act. The Company has
complied in all material respects and to the extent applicable with all
reporting obligations, under either Section 13(a) or 15(d) of the Exchange Act
for a period of at least twelve (12) months immediately preceding the
Subscription Date.
Section 4.15 Acknowledgment of Dilution. The Company is aware and
--------------------------
acknowledges that issuance of Common Stock upon the conversion of the Preferred
Stock and/or exercise of the Warrant, may result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Additional Shares in accordance with the terms herein, Underlying Shares in
accordance with the Certificate of Designation, and Warrant Shares in accordance
with the Warrant is unconditional and absolute regardless of the effect of any
such dilution.
Section 4.16 Employee Relations. The Company is not involved in any labor
------------------
dispute, nor, to the knowledge of the Company, is any such dispute threatened
which could reasonably be expected to have a Material Adverse Effect. None of
the Company's employees is a member of a union and the Company believes that its
relations with its employees are good.
Section 4.17 Insurance. The Company is insured by insurers of recognized
---------
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no notice to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operation, of the Company.
14
Section 4.18 Board Approval. The Board of Directors of the Company has
--------------
concluded, in its good faith business judgment, that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
Section 4.19 Integration. The Company, any of its affiliates, or any
-----------
person acting on its or their behalf has not, shall not, and shall use its best
efforts to ensure that no affiliate shall, directly or indirectly, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security of the Company that would be integrated with the offer or sale of the
Preferred Stock, and Warrant in a manner that would require the registration
under the Securities Act of the issue, offer or sale of the Preferred Stock and
Warrant to the Investor. The shares of Preferred Stock and Warrant are being
offered and sold pursuant to the terms hereunder, are not being offered and sold
as part of a previously commenced private placement of securities.
Section 4.20 Patents and Trademarks. The Company has, or has rights to
----------------------
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with its
business or which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). To the best knowledge of
the Company, none of the Intellectual Property Rights infringe on any rights of
any other Person, and the Company either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property Rights.
The Company has not received any notice from any third party of any claim of
infringement by the Company of any of the Intellectual Property Rights, and has
no reason to believe there is any basis for any such claim. To the best
knowledge of the Company, there is no existing infringement by another Person on
any of the Intellectual Property Rights.
Section 4.21 Use of Proceeds. The net proceeds from this offering will be
---------------
used to redeem the Company's presently outstanding shares of Series D and Series
E Preferred Stock, and not for the payment of any judgment; provided, however,
if proceeds remain after all shares of Series D and Series E Preferred Stock
have been redeemed, the Company may use such proceeds for working capital.
Section 4.22 Subsidiaries. Except as disclosed in the SEC Documents, the
------------
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
Section 4.23 No Private Placements. Except as disclosed in the SEC
---------------------
Documents, the Company has not conducted a private placement of its Common Stock
or of any debt or equity instrument convertible into Common Stock within one
year prior to the Closing Date. Except for the transactions contemplated
hereby, there are no outstanding securities issued by the Company that are
entitled to registration rights under the Securities Act. Except as disclosed
in the SEC Documents, there are no outstanding securities issued by the Company
that are directly or indirectly convertible into, exercisable into, or
exchangeable for, shares of Common Stock, that have anti-dilution or similar
rights that would be affected by the issuance of the Preferred Stock, Warrant,
or Securities.
15
Section 4.24 Permits; Compliance. The Company and each of its
-------------------
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the Company,
threatened regarding the suspension or cancellation of any of the Company
Permits except for such Company Permits, the failure of which to possess, or the
cancellation, or suspension of which, would not, individually or in the
aggregate, have a Material Adverse Effect. To the Company's knowledge, neither
the Company nor any of its subsidiaries is in material conflict with, or in
material default or material violation of, any of the Company Permits. Since
January 1, 1999 neither the Company nor any of its subsidiaries has received any
notification with respect to possible material conflicts, material defaults or
material violations of applicable laws.
Section 4.25 Taxes. All federal, state, city and other tax returns,
-----
reports and declarations required to be filed by or on behalf of the Company
have been filed and such returns are complete and accurate and disclose all
taxes (whether based upon income, operations, purchases, sales, payroll,
licenses, compensation, business, capital, properties or assets or otherwise)
required to be paid in the periods covered thereby.
Section 4.26 No Bankruptcy. The Company is aware of no facts or claims
-------------
against it which would, and the Company has no present intention to, liquidate
the assets of the Company and/or seek bankruptcy protection either voluntarily
or involuntarily.
Section 4.27 Authority to Redeem. The Company is authorized to redeem the
-------------------
two series of preferred stock referred to in Section 4.21 above, pursuant to the
certificate of designations creating those two series of preferred stock which
are being redeemed in full with the proceeds from this transaction. The Company
has taken all appropriate measures to effectuate such redemption and will close
the redemption within twenty calendar days after the Closing Date.
ARTICLE V
---------
Covenants of the Investor
-------------------------
Section 5.1 4.99% Limitation. The number of shares of Common Stock which
----------------
may be acquired by the Investor pursuant to the terms of this Agreement shall
not exceed the number of such shares which, when aggregated with all other
shares of Common Stock then owned by the Investor (or one or more assigns of the
Investor), would result in the Investor owning more than 4.99% of the then
issued and outstanding Common Stock at any one time. The preceding sentence
shall not interfere with the Investor's right to convert any share or shares of
Preferred Stock and/or exercise the Warrant over time which in the aggregate
totals more than 4.99% of the then outstanding shares of Common Stock so long as
the Investor (or one or more assigns of the Investor) does not own more than
4.99% of the then outstanding Common Stock at any given time.
16
ARTICLE VI
----------
Covenants of the Company
------------------------
Section 6.1 Registration Rights. The Company shall cause the Registration
-------------------
Rights Agreement to remain in full force and effect so long as any Registrable
Securities remain outstanding and the Company shall comply in all material
respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
---------------------------
Company has authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, no less than 200% of
the shares of Common Stock underlying the Preferred Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Securities; such
amount of shares of Common Stock to be reserved shall be calculated based upon
the Purchase Price therefor, Conversion Price and Exercise Price under the terms
of this Agreement, the Certificate of Designation, and Warrant. The number of
shares so reserved shall be increased or decreased to reflect potential
increases or decreases in the Common Stock that the Company may thereafter be so
obligated to issue by reason of adjustments to the Conversion Price and/or
Exercise Price as set forth in the Certificate of Designation and the Warrant.
Section 6.3 Listing of Common Stock. The Company shall (a) not later than
-----------------------
the tenth Business Day following the Closing Date prepare and file with the
Principal Market (as well as any other national securities exchange, market or
trading facility on which the Common Stock is then listed) an additional shares
listing application covering at least the sum of (i) two times the number of
Underlying Shares as would be issuable upon a conversion in full of (and as
payment of dividends in respect of) the Preferred Stock, assuming such
conversion occurred on the Closing Date, and (ii) the Warrant Shares issuable
upon exercise in full of the Warrant, (b) take all steps necessary to cause such
shares to be approved for listing on the Principal Market (as well as on any
other national securities exchange, market or trading facility on which the
Common Stock is then listed) as soon as possible thereafter, and (c) provide to
the Investor evidence of such listing, and the Company shall maintain the
listing of its Common Stock on such exchange or market for so long as the
Registrable Securities, Preferred Stock and/or Warrant is owned by the Investor.
In addition, if at any time the number of shares of Common Stock issuable on
conversion of all then outstanding shares of Preferred Stock, on account of
accrued and unpaid dividends thereon and upon exercise in full of the Warrant is
greater than the number of shares of Common Stock theretofore listed with the
Principal Market (and any such other national securities exchange, market or
trading facility), the Company shall promptly take such action (including the
actions described in the preceding sentence), if required pursuant to the rules
and regulations of the Principal Market, to file an additional shares listing
application with the Principal Market (and any such other national securities
exchange, market or trading facility) covering at least a number of shares equal
to the sum of (x) 200% of the number of Underlying Shares as would then be
issuable upon a conversion in full of the Preferred Stock, and (y) the number of
Warrant Shares as would be issuable upon exercise in full of the Warrant. The
Company warrants that it (i) has not received any notice, oral or written,
affecting its continued listing on the NASDAQ Small Cap Market, and (ii) is in
full compliance with the requirements for continued listing on the NASDAQ Small
Cap Market. The Company will take no
17
action, which would impact its continued listing or the eligibility of the
Company for such listing. The Company will comply with the listing and trading
requirements of its Common Stock on the NASDAQ Small Cap Market (and of any then
Principal Market) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market.
If the Company receives notification from NASDAQ or any other controlling entity
stating that the Company is not in compliance with the listing qualifications of
such Principal Market, the Company will immediately thereafter give written
notice to the Investor and take all action necessary to bring the Company into
compliance with all applicable listing standards of the Principal Market.
Section 6.4 Exchange Act Registration. The Company will maintain the
-------------------------
registration of its Common Stock under Section 12 of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act.
Section 6.5 Legends. The securities to be sold by the Company pursuant to
-------
this Agreement shall be free of restrictive legends, except as set forth in
Article VIII.
Section 6.6 Corporate Existence. The Company will take all steps
-------------------
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration. The Company
-----------------------------------------------
will immediately notify the Investor upon the occurrence of any of the following
events in respect of a registration statement or related prospectus in respect
of an offering of Registrable Securities: (i) receipt of any request for
additional information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or related prospectus;
(ii) the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable
18
determination that a post-effective amendment to the Registration Statement
would be appropriate. The Company will promptly make available to the Investor
any such supplement or amendment to the related prospectus.
Section 6.8 Consolidation; Merger. For so long as the Preferred Stock,
---------------------
Warrant, and/or Registrable Securities are owned by the Investor, the Company
shall not, at any time after the date hereof, effect any merger or consolidation
of the Company with or into, or a transfer of all or substantially all of the
assets of the Company to, another entity (a "Consolidation Event") unless the
resulting successor or acquiring entity (if not the Company) assumes by written
instrument the obligation to deliver to the Investor such shares of stock and/or
securities as the Investor is entitled to receive pursuant to this Agreement,
and all Exhibits annexed hereto.
Section 6.9 Issuance of Underlying Shares and Warrant Shares. The
------------------------------------------------
issuance of the Underlying Shares and the Warrant Shares pursuant to exercise of
the Warrant, and the conversion of the Preferred Stock, shall be made in
accordance with the provisions and requirements of Section 4(2) of the
Securities Act or Regulation D and any applicable state securities law.
Section 6.10 Legal Opinion. The Company's independent counsel shall
-------------
deliver to the Investor upon execution of this Agreement, an opinion in the form
of Exhibit E annexed hereto. The Company will obtain for the Investor, at the
Company's expense, any and all opinions of counsel which may be reasonably
required in order to convert the Preferred Stock and/or exercise the Warrant,
including, but not limited to, obtaining for the Investor an opinion of counsel,
subject only to receipt of a notice of conversion (the "Notice of Conversion")
in the form of Exhibit G, and/or subject only to a receipt of a notice of
exercise in the form annexed to the Warrant, directing the Company's transfer
agent to remove the legend from the certificate.
Section 6.11 Issuance Limitation. At no time will the Company be
-------------------
obligated to issue more than 20% of the number of shares of Common Stock
outstanding as of the Closing Date, unless the Company has obtained shareholder
approval. In lieu of such issuance(s) (and if the Company is otherwise unable
to issue shares of Common Stock to the Investor as they become due pursuant to
the terms of this Agreement) the Company shall pay to the Investor the cash
value of such shares within five Business Days of when such issuance is due
based upon the Bid Price of the Common Stock on the Trading Date of when due (or
such next Trading Day if such day is not a Trading Day).
Section 6.12 Right of First Refusal/Restrictions on Future Financing. The
-------------------------------------------------------
Company agrees that should it elect to enter into a private transaction for
convertible debt or equity financing (including any financing with a reset
provision, and excluding securities issued in connection with acquisition
transactions) at any time prior to six months after the Effective Date, the
Company will give the Investor written notice of the terms and conditions of
such offer (the "ROFR Notice") via facsimile. The Investor shall have a right
of first refusal to commit to provide the funds pursuant to the terms as
outlined in the ROFR Notice. The Investor shall have twenty (20) Business Days
to reply in writing after receipt of the ROFR Notice from the Company, and the
Company and the Investor must close such transaction within ten Business Days
after said twenty Business Day period. If such written reply is not received by
the Company within such twenty (20) Business Day period, the Company shall have
the right to conclude a transaction with another investor or investors
19
provided the transaction is not materially different from that outlined to the
Investor as was provided in the ROFR Notice. If the Investor does exercise its
right of first refusal, such transaction must close within ten Business Days
after such twenty Business Day period. If the Investor does not exercise its
right of first refusal, the Company agrees that it will not, without the prior
written consent of the Investor, issue any Common Stock or any financial
instrument convertible into shares of Common Stock (or any financial instrument
with a reset or repricing provision) unless (a) the first use of proceeds from
such issuance would be to redeem the Preferred Stock, (b) the Investor has
converted all of the shares of Preferred Stock into Common Stock, or (c) the
Common Stock or the Common Stock underlying such financial instrument would not
be registered for resale until one year from the last date of issuance of
Underlying Shares.
Section 6.13 Conversion of Preferred Stock. The Company will permit the
-----------------------------
Investor to exercise its right to convert the Preferred Stock by telecopying an
executed and completed Notice of Conversion to the Company.
Section 6.14 Exercise of Warrants. The Company will permit the Investor
--------------------
to exercise its right to purchase shares of Common Stock upon exercise of the
Warrants as is set forth in the Warrants.
Section 6.15 Increase in Authorized Shares. At such time as the Company
-----------------------------
would be, if a Notice of Conversion or notice of exercise (as the case may be)
were to be delivered on such date, precluded from (a) converting in full all of
the shares of Preferred Stock that remain unconverted at such date (and paying
any accrued but unpaid dividends in respect thereof in shares of Common Stock),
or (b) honoring the exercise in full of the Warrant, due to the unavailability
of a sufficient number of shares of authorized but unissued or re-acquired
Common Stock, the Board of Directors of the Company shall promptly (and in any
case within 90 calendar days from such date) hold a shareholders meeting in
which the shareholders would vote for authorization to amend the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue to at least a number of shares equal to
the sum of (i) all shares of Common Stock then outstanding, (ii) the number of
shares of Common Stock issuable on account of all outstanding warrants, options
and convertible securities (other than the Preferred Stock and the Warrant) and
on account of all shares reserved under any stock option, stock purchase,
warrant or similar plan, (iii) 200% of the number of Underlying Shares as would
then be issuable upon a conversion in full of the then outstanding shares of
Preferred Stock and as payment of all future dividends thereon in shares of
Common Stock in accordance with the terms of this Agreement and the Certificate
of Designation, and (iv) such number of Warrant Shares as would then be issuable
upon the exercise in full of the Warrant. In connection therewith, the Board
of Directors shall (x) adopt proper resolutions authorizing such increase, (y)
recommend to its shareholders, and otherwise use its best efforts to promptly
and duly obtain shareholder approval to carry out such resolutions and (z)
within five Business Days of obtaining such shareholder authorization, file an
appropriate amendment to the Company's Certificate of Incorporation to evidence
such increase. The foregoing shall not relieve the Company from any claim for
damages that the Investor may have against the Company as a result of the
Company not having a sufficient number of authorized shares of Common Stock to
satisfy its obligations under this Agreement or any Exhibit annexed hereto.
20
Section 6.16 Notice of Breaches. Each of the Company on the one hand, and
------------------
the Investor on the other, shall give prompt written notice to the other of any
breach by it of any representation, covenant, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation, covenant, or warranty or other agreement of such
party, as the case may be, contained in this Agreement or any Exhibit annexed
hereto, to be incorrect or breached as of such Closing Date. However, no
disclosure by either party pursuant to this Section shall be deemed to cure any
breach of any representation, warranty or other agreement contained in this
Agreement or any Exhibit annexed hereto. Notwithstanding the generality of the
foregoing, the Company shall promptly notify the Investor of any notice or claim
(written or oral) that it receives from any lender of the Company to the effect
that the consummation of the transactions contemplated by this Agreement or any
Exhibit annexed hereto, violates or would violate any written agreement or
understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to the Investor a copy of any written statement in
support of or relating to such claim or notice.
Section 6.17 Transfer of Intellectual Property Rights. Except in the
----------------------------------------
ordinary course of the Company's business or in connection with the sale of all
or substantially all of the assets of the Company, the Company shall not
transfer, sell or otherwise dispose of, any Intellectual Property Rights, or
allow the Intellectual Property Rights to become subject to any Liens, or fail
to renew such Intellectual Property Rights (if renewable and would otherwise
expire); provided, however, the Company may license the Intellectual Property
Rights.
Section 6.18 Notices. The Company agrees to provide all holders of
-------
Preferred Stock and Warrant with copies of all notices and information,
including without limitation notices and proxy statements in connection with any
meetings, that are provided to the holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such
Common Stock holders.
Section 6.19 Questions/Answers. The Company shall provide the Investor
-----------------
with the opportunity to ask additional questions of, and receive answers (all of
which information shall be limited to information in the public domain) from the
Company concerning the Company during the period which the Investor owns the
Preferred Stock and/or Warrant.
ARTICLE VII
-----------
Due Diligence Review; Non-Disclosure of Non-Public Information
--------------------------------------------------------------
Section 7.1 Due Diligence Review. The Company shall make available for
---------------------
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor), and any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investor pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky, NASD
or other filing, all financial and other records, all SEC Documents and other
filings with the SEC, and all other corporate
21
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and its respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 7.2 Non-Disclosure of Non-Public Information.
----------------------------------------
(a) The Company shall not disclose non-public information to the
Investor, or advisors to or representatives of, the Investor unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, and their advisors and
representatives, with the opportunity to accept or refuse to accept such non-
public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose non-
public information to the Investor or its advisors or representatives, and the
Company represents that it does not disseminate non-public information to any
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section shall be construed
to mean that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such information) may not
obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of its opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
22
ARTICLE VIII
------------
Legends
-------
Section 8.1 Legends. The Investor agrees to the imprinting, so long as is
-------
required by this Section, of the following legend (or such substantially similar
legend as is acceptable to the Investor and its counsel, the parties agreeing
that any unacceptable legended securities shall be replaced promptly by and at
the Company's cost) on each of the Preferred Stock, Underlying Shares and
Warrant Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
The Investor further agrees to the imprinting, so long as required by this
Section of the following legend (or such substantially similar legend as is
acceptable to the Investor and its counsel, the parties agreeing that any
nonacceptable legended securities shall be replaced promptly by and at the
Company's cost) on each share of Preferred Stock:
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO
REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, OR OTHER SPECIAL RIGHTS OF THE SERIES F 12% CONVERTIBLE PREFERRED
STOCK AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES
AND/OR RIGHTS.
The Company agrees that it will provide the Investor, upon request, with a
certificate or certificates representing the Securities, free from such legend
at such time as such legend is no longer required hereunder. The Company may
not take any action or make any notation on its records or give instructions to
any transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit F hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and except as provided below, without consultation
by the transfer agent with the Company or its counsel and without the
23
need for any further advice or instruction or documentation to the transfer
agent by or from the Company or its counsel or the Investor:
(a) at any time after the Effective Date, upon surrender of one or
more certificates evidencing the Warrant, Preferred Stock, Underlying Shares or
Warrant Shares that bear the aforementioned Legend, to the extent accompanied by
a notice requesting the issuance of new certificates free of the aforementioned
legend to replace those surrendered; provided that (i) the Registration
Statement shall then be effective; (ii) the Investor confirms to the transfer
agent that it has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide transaction to a
third party that is not an affiliate of the Company; and (iii) the Investor
confirms to the transfer agent that the Investor has complied with the
prospectus delivery requirement; or
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities, that bear the aforementioned legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of such legend to replace those surrendered and containing representations that
(i) the Investor is permitted to dispose of such Registrable Securities, without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act (or any other similar exemption as may then be in effect), or
(ii) the Investor has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Registrable Securities, in a manner other than
pursuant to an effective registration statement, to a transferee who will upon
such transfer be entitled to freely tradable securities. The Company shall have
counsel provide any and all opinions necessary for the sale under Rule 144 (or
such other applicable exemption).
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent.
Section 8.2 No Other Legend or Stock Transfer Restrictions. No legend
----------------------------------------------
other than those specified in this Article (or pursuant to the Registration
Statement) have been or shall be placed on the share certificates representing
the Common Stock, and no instructions or "stop transfer orders," so called,
"stock transfer restrictions," or other restrictions have been or shall be given
to the Company's transfer agent with respect thereto other than as expressly set
forth in this Article.
Section 8.3 Investor's Compliance. Nothing in this Article shall affect
---------------------
in any way any of the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
24
ARTICLE IX
----------
Choice of Law
-------------
Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will be
----------------------------------
construed and enforced in accordance with and governed exclusively by the laws
of the State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York sitting in Manhattan in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
-----
non conveniens, to the bringing of any such proceeding in such jurisdictions.
--- ----------
ARTICLE X
---------
Assignment; Entire Agreement, Amendment; Termination
----------------------------------------------------
Section 10.1 Assignment. The Investor's interest in this Agreement and
----------
its ownership of the Preferred Stock and Warrant may be assigned or transferred
at any time, in whole or in part, to any other person or entity (including any
affiliate of the Investor) who agrees to, and truthfully can, make the
representations and warranties contained in Article III, and who agrees to be
bound by the covenants of Article V. The provisions of this Agreement shall
inure to the benefit of, and be enforceable by, any transferee of any of the
Preferred Stock and/or Warrant purchased or acquired by the Investor hereunder
with respect to the Common Stock held by such person.
Section 10.2 Termination. This Agreement shall terminate upon the
-----------
earliest of (i) the date that all the Registrable Securities have been sold by
the Investor pursuant to the Registration Statement; or (ii) five years after
the Closing Date; provided, however, that the provisions of Articles III, IV, V,
VI, VII, VIII, IX, X, XI, and XII herein, and the registration rights provisions
for the Registrable Securities held by the Investor set forth in this Agreement,
and the Registration Rights Agreement, shall survive the termination of this
Agreement.
ARTICLE XI
----------
Notices
-------
Section 11.1 Notices. All notices, demands, requests, consents,
-------
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day during normal
25
business hours where such notice is to be received), or the first Business Day
following such delivery (if delivered other than on a Business Day during normal
business hours where such notice is to be received), (b) on the second Business
Day following the date of mailing by reputable courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur, or (c) five calendar days after sent by regular mail. The
addresses for such communications shall be:
If to the Company:
ImaginOn, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President and CEO
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇▇, LLC
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor:
Gage LLC
c/o Citco Trustees Cayman Limited
Commercial Centre
PO Box 31106SMB
Grand Cayman, Cayman Islands
British West Indies
Attention: ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇: ▇▇▇ ▇▇▇-▇▇▇▇
Telephone: ▇▇▇ ▇▇▇-▇▇▇▇
with a copy to:
The ▇▇▇▇▇▇▇▇▇ Law Group, P.C.
▇▇ ▇▇▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
26
Facsimile:(▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 11.1 by giving at least ten calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 11.2 Indemnification. The Company agrees to indemnify and hold
---------------
harmless the Investor and each officer, director of the Investor or person, if
any, who controls the Investor within the meaning of the Securities Act against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), to which the Investor may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon the breach by the Company of any term of this Agreement. This
indemnity agreement will be in addition to any liability, which the Company may
otherwise have.
The Investor agrees that they will indemnify and hold harmless the Company,
and each officer, director of the Company or person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such officer, director or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach by such Person of any term of
this Agreement. This indemnity agreement will be in addition to any liability,
which the Investor or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of notice
of the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this Section,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any indemnified party otherwise than as to
the particular item as to which indemnification is then being sought solely
pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed
27
the defense of the action with counsel reasonably satisfactory to the
indemnified party; provided that if the indemnified party is one of the
Investor, the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party, or (ii) the named parties to
any such action (including any impleaded parties) include both the Investor and
the indemnifying party and the Investor shall have been advised by such counsel
that there may be one or more legal defenses available to the indemnifying party
different from or in conflict with any legal defenses which may be available to
the Investor (in which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of the Investor, it being
understood, however, that the indemnifying party shall, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable only for the reasonable fees and expenses of one separate firm of
attorneys for the Investor, which firm shall be designated in writing by the
Investor). No settlement of any action against an indemnified party shall be
made without the prior written consent of the indemnified party, which consent
shall not be unreasonably withheld.
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such judgment
may enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury. If the Investor, or any person claimed to be
affiliated or associated with the Investor, becomes involved in any capacity in
any action, proceeding or investigation brought by or against any such person,
including shareholders of the Company, in connection with or as a result of any
matter referred to in this Agreement or any exhibit annexed hereto, the Company
shall reimburse the Investor and/or those claimed to be affiliated or associated
with the Investor for its legal fees and expenses and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith,
as those fees and expenses are incurred, provided, however, that if at the
conclusion of such action, proceeding or investigation it shall be finally
judicially determined by a court of competent jurisdiction that indemnity for
such fees and expenses is contrary to law, or that the Investor is not the
prevailing party then in that event, the Investor and/or any other person having
received such advances of fees and/or expenses shall reimburse the Company in
full for the sums advanced.
Section 11.3 Contribution. In order to provide for just and equitable
------------
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 11.2 hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then
28
the Company and the Investor shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in Section 11.2 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person who was
not guilty of such fraudulent misrepresentation.
ARTICLE XII
-----------
Miscellaneous
-------------
Section 12.1 Counterparts; Facsimile; Amendments. This Agreement may be
-----------------------------------
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and the Investor on the other hand.
Section 12.2 Entire Agreement. This Agreement, and the Exhibits annexed
----------------
hereto, which include, but are not limited to the Certificate of Designation,
the Warrant, the Escrow Agreement, and the Registration Rights Agreement, set
forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
and Schedules to this Agreement are incorporated herein by this reference and
shall constitute part of this Agreement as is fully set forth herein.
Section 12.3 Survival; Severability. The representations, warranties,
----------------------
covenants and agreements of the parties hereto shall survive the Closing
hereunder. If any provision of this Agreement becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that
such severability shall be ineffective if it materially changes the economic
benefit of this Agreement to any party.
Section 12.4 Title and Subtitles. The titles and subtitles used in this
-------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
29
Section 12.5 Reporting Entity for the Common Stock. The reporting entity
-------------------------------------
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Investor and the Company shall be required to rely upon any other
reporting entity.
Section 12.6 Replacement of Certificates. Upon (i) receipt of evidence
---------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Preferred Stock, Warrant, or
Securities and (ii) in the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company, and to the Company's transfer
agent, or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Section 12.7 Fees and Expenses. Each of the parties shall pay its own
-----------------
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company shall pay on the
Closing Date, the sum of $30,000, in cash, out of escrow, to the Escrow Agent.
Section 12.8 Publicity. The Company and the Investor shall consult with
---------
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Investor without the prior written consent of the Investor, except to the
extent required by law, in which case the Company shall provide the Investor
with prior written notice of such public disclosure.
EXHIBITS:
--------
A: Certificate of Designation
B: Escrow Agreement
C: Registration Rights Agreement
D: Common Stock Purchase Warrant
E: Opinion of Counsel
F: Instruction Letter to Transfer Agent
G: Notice of Conversion
30
IN WITNESS WHEREOF, the parties hereto have caused this Preferred Stock
Purchase Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
ImaginOn, Inc.
By: ____________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President and CEO
Gage LLC
By:______________________
31